Home loans are an essential part of buying a home. However, they can be complex and confusing. This video provides an introduction to home loans and how they work for you.
Most people will not have the cash on hand to pay for a home upfront. This is where a home loan, or mortgage, comes in. With a mortgage, you place a down payment on a home and a lender pays for the rest. The home buyers will pay off the loan over the next couple of decades.
To qualify for a home loan, the borrowers must have good credit. The bank will run a credit check on the potential buyers to make sure they are in good standing. If everything checks out then a down payment will be determined.
Usually, a down payment is about 20% of the value of the home. However, this can vary from lender to lender. Other important values are the interest rate, the term, and amortization.
The interest rate is the added percentage the borrowers pay so that the lenders can make a profit. For example, a couple buying a home may be charged a 5% fixed rate over a 5-year term. This means their interest rate stays at 5% for five years. Amortization is when the home is completely paid off – it’s the deadline to repay the loan.
For more information, click on the video above.